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Hypercom Confidential

Page 3 of 9

Hypercom's attorneys have asked the judge to enforce the contract between the firm and Smith.

"It's as simple as a deal is a deal," Snell & Wilmer's Bill Hayden wrote in legal papers earlier this year.

And if a deal is a deal, the company's argument goes, and Colleen Smith broke it by talking, then she should have to return its proceeds -- including the mortgage payment and the attorney's fees. It would also mean Hypercom won't have to pay for the education of Smith's sons.

If the judge rules against Hypercom and sets a trial date, new details of an already remarkable and sordid case will emerge -- something the company surely doesn't want. Burke's decision is imminent.

The facts in the public record provide a rare, fascinating and often distasteful look inside one of Phoenix's largest companies.

Colleen Smith's novel case encompasses complex legal issues, human emotions and nagging questions. Among the questions:

Why didn't Smith report the alleged rapes to the police?

She says she drove to Thunderbird Samaritan Hospital in late September 1996, after the first incident, though the hospital has yet to produce records. She also says she spoke to a rape crisis hot-line counselor several times -- sources confirm this -- but balked at calling police for fear she'd lose her job, or that Gonzalez would harm her.



It's unclear why Hypercom has continued to tolerate Jairo Gonzalez. The firm paid another female employee $100,000 last year after she leveled her own allegations against Gonzalez of "sexual harassment and physical assaults." And, according to Wallner's testimony, a third woman also made assault allegations against him.

If Wallner is accurate, it's not because Gonzalez -- though a "highly effective" employee, in Wallner's words -- is essential to Hypercom's success.

"With or without Mr. Gonzalez, or with or without Mrs. [Smith], Wallner testified, "the company would be able to function just the same as before."

That statement seems disingenuous.



Hypercom summed up Gonzalez's value to the company in a 1997 annual filing with the federal Securities and Exchange Commission: "The loss of . . . Gonzalez could have a material adverse effect on the company's business, operating results and financial condition."

This case is unusual in that the company first approached the alleged victim, not the other way around. Even then, she never spoke to an attorney about her situation for almost a year after signing her agreement.

Hypercom officials say they went to Smith because it was the right thing to do. But Hypercom also had good reason to believe that the rape allegations and other alleged incidents involving Gonzalez and other Hypercom female employees might become public and jeopardize the IPO.

"Either Mrs. Smith was being recompensed for inappropriate conduct, whatever that may mean," Superior Court Judge Pendleton Gaines said during a related proceeding October 12, "[or] another interpretation of the agreement, frankly, is that the company may have been purchasing [her] silence."

(Several stock market experts contacted by New Times say savvy investors always scrutinize a company's senior management when making their decisions, and that confidence in the top guns can boost the price of shares. To the contrary, those experts say, such serious allegations against a key player such as Gonzalez likely would have made some investors rethink their choice.)

Smith's attorney, Larry Debus, told Judge Burke at an August 23 hearing, "The very reason that they are hustling this woman [Smith], the very reason they're attempting to deceive her, the very reason they're trying to keep her quiet and shut her up is so that they can go out for their $100-$200 million IPO, and once that's over, they don't care because they already got their money. . . . She was told daily, sometimes many times a day, that if she told her family, if she told her divorce lawyers, if she told anybody [about the agreement], she was going to lose everything."

Smith says John Murphy, the human resources director, kept telling her that.

Consider that Murphy, charged with investigating rumors of Jairo Gonzalez's aggression, never bothered to interview Gonzalez before concluding the sexual episodes likely had been consensual.

Worse yet, Murphy himself tried to cultivate a romantic relationship with Smith -- during and after he completed his "investigation." He spoke to her several times each day on the phone, and showed up unannounced at her home. He showered her with letters, cards, flowers and gifts. He took Smith and her sons to a hockey game, then to a charity dinner.

"If I sign this letter the way I would like to, you would probably go get a gun and shoot me, so I'll sign it, Affectionately Yours, John," Murphy wrote on November 5, 1997, three weeks after he'd met Smith.

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Paul Rubin
Contact: Paul Rubin